>> Eric: I HOPE YOU CAN FILL US IN ON THIS AS WE GO DOWN THE TRAIL.

GOOD TO SEE YOU.

>> CATHY: THE HIGH COST OF PRESCRIPTION DRUGS HAS LED BOTH CONGRESS AND MANY STATE LEGISLATURES, INCLUDING HERE IN MINNESOTA, TO ENACT LAWS DESIGNED TO CURB SOARING DRUG PRICES.

FRED DE SAM LAZARO IS A TWIN CITIES BASED CORRESPONDENT FOR THE PBS NEWSHOUR.

HIS RECENT NATIONAL REPORT ON THE FINANCIAL CHALLENGES FACING SMALL AND INDEPENDENT PHARMACIES IN THE CURRENT DRUG-PRICING SYSTEM BEGINS RIGHT HERE IN ST. PAUL.

>> THIS STORY BEGAN ON A PERSONAL NOTE.

I RECENTLY WENT TO REFILL A PRESCRIPTION AT MY NEIGHBORHOOD PHARMACY.

I ASSUMED MY DRUG'S $500 CO-PAY WAS BRINGING A REASONABLE PROFIT TO THE STORE.

BUT UCH TO MY SURPRISE A FEW MONTHS AGO, THE FOLKS AT St. PAUL CORNER DRUG ASKED IF I COULD TAKE MY BUSINESS ELSEWHERE BECAUSE THEY WERE LOSING MONEY FILLING THIS PRESCRIPTION.

>> IF YOU PAY $578 FOR SOMETHING AND YOU ONLY TAKE IN $500, THAT'S NOT A SUSTAINABLE MODEL AND THAT'S KIND OF WHERE WE'RE AT RIGHT NOW.

>> JOHN OWNS THE DRUGSTORE AND NORMAN ROCKWELL LIKE FIXTURE THAT'S BEEN HERE FOR 101 YEARS, COMPLETE WITH A SODA FOUNTAIN UNTIL THE PANDEMIC.

HE'S NOT SURE HOW LONG HE WILLEE BE ABLE TO HANG ON.

>> THEY'RE LITERALLY UCKING THE FINANCIAL LIFE OUT OF MY BUSINESS.

>> THE THE "THEY" HE'S REFERRING TO ARE THREE PRINCIPAL LINKS IN A COMPLEX SUPPLY CHAIN.

DRUG MANUFACTURERS, WHOLESALE DISTRIBUTORS AND HE SAYS, HIS MOST IMMEDIATE EXISTENTIAL THREAT, PBRMs OR PHARMACY BENEFIT MANAGERS.

SO-CALLED MIDDLE MEN COMPANIES THAT DETERMINE WHAT DRUGS ARE COVERED BY INSURANCE, THE PRICE HE IS PAID AND THE CO-PAYS REQUIRED OF PATIENTS.

PBMs BEGAN TO GROW RAPID PLEA IN THE 1980s AND '90s AS THE PHARMACEUTICAL PIPELINE BEGAN SWELLING WHERE NO DRUGS, STATINS TO LOWER CREST CONTROL, ACID-REDUCERS, HEALTH SHORESSERS SCRAMBLED TO KEEP UP.

>> IT DIDN'T TAKE VERY LONG FOR THE INSURANCE SIDE OF LIFE TO SAY, HEY, YOU WANT TO MANAGE THIS STUFF FOR US, GREAT.

IT WAS A REASONABLE THING TO SIMPLIFY THE CLAIMS MANAGEMENT OF PRESCRIPTION DRUGS.

>> PBMs WERE HIRED BY INSURANCE COMPANIES TO MANAGE THE GROWING DRUG BENEFIT COSTS BRING ESTABLISHING AND MAINTAINING FORMULARIES, A LIST OF WHAT DRUGS WILL AND WILL NOT BE COVERED.

OVER TIME, THEY'VE EVOLVED INTO A MULTI-BILLION-DOLLAR BUSINESS THEMSELVES.

>> THEY LITERALLY ARE TAKING MONEY FROM EVERY ASPECT OF PHARMACY DISTRIBUTION.

>> THEY DEMAND EXTENSIVE DOCUMENTATION, TIE REIMBURSEMENTS TO ELABORATE METRICS OF QUALITY AND HITS, HE COMPLAINS, REIMBURSE HIM FAR LESS THAN WHAT IT COSTS TO FILL A PRESCRIPTION, FAR LESS THAN THEY BILL THEIR CLIENT HEALTH PLANS FOR THE SAME PRESCRIPTION.

>> BILL BLUE CROSS $40, PAY ME $7.

PEOPLE ASK WHERE DOES IT IS 33 GO?

TO THE PBM.

>> AMOUNT PBMs MUCH BRANCHED INTO INTO HIS BUSINESS WITH THEIR OWN RETAIL SHOPS LIKE CVS AND MAIL ORDER AND SPECIALTY PHARMACIES.

>> ALL THE THINGS THAT YOU SEE ADVERTISED ON TV, THOSE ARE ALL ESSENTIALLY NOT AVAILABLE AT MY PHARMACY.

THEY'VE BEEN CLASSIFIED BY THE PHARMACY BENEFIT MANAGER INDUSTRY AS SPECIALTY DRUGS, AND WHAT'S SPECIAL ABOUT 'EM IS THAT THEY CAN MAKE A LOT OF MONEY OFF OF THEM.

>> NOTHING BEYOND YOUR EXPERTISE.

>> CORRECT.

>> ERIC: HERE WITH MORE ON THIS STORY, FRED DE SAM LAZARO.

WELCOME BACK.

WHO DUE ROOT FOR HERE, THE BENEFIT MANAGERS, THE INSURANCE INDUSTRY, BIG PHARMA?

>> YOU KNOW, ERIC, THIS IS A HALF-TRILLION-DOLLAR INDUSTRY, $500 BILLION A YEAR AND AS YOU MIGHT IMAGINE, IT'S A LITTLE COMPLICATED, IT'S A LITTLE OH PACK AND -- AND SORT OF WHACK-A-MOLE AS YOU TRY IF YOU'RE A LAWMAKER OR A POLICY-MAKER TO ADVOCATE SOMETHING BECAUSE IT NEEDS TO BE SWEEPING TO BE EFFECTIVE.

OTHERWISE YOU HAVE A WHACK-A-MOLE SITUATION.

ATTACK IT HERE, IT WILL POP UP SOMEWHERE ELSE.

IT'S VERY COMPLICATED AND AS ONE OF THE PEOPLE IN OUR PIECE, Dr. VINCENT, WHO YOU'LL SEE IN OUR SEGMENT SAYS, IT MAY BE FIFTY PEOPLE IN THE COUNTRY WHO UNDERSTAND THE WHOLE SYSTEM.

I AM NOT ONE OF THOSE.

>> Cathy: HE DID SAY, HE DID TELL YOU THAT OUTRAGE HE FELT WILL CHANGE THE SYSTEM.

THAT KIND OF HAPPENED WITH INSULIN, DID IT NOT?

>> YEAH, AND FROM ALL ACCOUNTS, THAT IS AN EXCEPTION.

THERE EVEN ARE PEOPLE WHO SAY THAT THE INSULIN DECISION, THAT IS THE DECISION TO LOWER THE PRICE OF INSULIN HAD SOMETHING TO DO WITH MEDICAID REIMBURSEMENTS THAT WOULD COME TO PHARM SUIT CALL COMPANIES, SO IT'S A LITTLE BLURRY BUT SUFFICE IT TO SAY THAT THE PHARMA COMPANIES DID COME UNDER CONSIDERABLE PUBLIC PRESSURE FOR THE PRICE OF INSULIN.

WE HAD A CELEBRATED CASE IN MINNESOTA WHERE A YOUNG MAN ACTUALLY DIED BECAUSE HE COULDN'T AFFORD HIS INSULIN.

>> Eric: HOW DID THE PHARMACY BENEFIT MANAGERS GET A TOEHOLD IN THE FIRST PLACE?

>> IT IS A REFLECTION OF HOW THIS IS -- THIS IS THE POSITIVE SIDE OF THE PHARMACEUTICAL STORY.

WE HAVE SEEN A SWELLING OF THE PIPELINE OF DRUGS, JUST SWELL ENORMOUSLY BEGINNING IN THE '70s AND '80s AND IF YOU'RE AN EMPLOYER TRYING TO COFFER YOUR EMPLOYEES, AND YOUR INSURANCE COMPANY IS TRYING TO MANAGE ALL OF THIS, IT WAS BEST TO OUT-SOURCE THIS TO HAVE SOMEBODY ACTUALLY MANAGE A BENEFIT.

WHAT THEN HAPPENS IS THAT YOU HAVE MUSHROOMING OFF THE BUSINESS OPPORTUNITY OF THESE PEOPLE.

PBMs BECOME VERY LARGE AND VERY ATTRACTIVE AND TODAY THE THREE LARGEST OF THEM, ARE OWNED BY LARGE INSURANCE COMPANIES.

>> Eric: IS THIS VERTICAL INTEGRATION OR SOMETHING?

>> THEY'RE OWNED BY INSURANCE COMPANIES WHICH -- AND THE THREE LARGEST OF THEM COMMAND 80% OF THE MARKET, SO YOU CAN IMAGINE THEIR SIZE.

SO THIS IS VERY, VERY COMPLICATED IN TERMS OF DETERMINING WHY DRUG PRICES ARE GOING UP BECAUSE YOU HAVE THE PHARMACEUTICAL COMPANIES BLAMING THE PBMs AND THE PBMs SAY, OH, NO, IF IT WERE NOT FOR US, THESE PRICES WOULD BE EVEN HIGHER.

>> Cathy: THERE SEEMS THAT THERE'S, THEN, QUITE A GREAT DEAL OF CONSOLIDATION, SOUNDS LIKE, IF I'M LISTENING TO YOU CORRECTLY.

MIGHT LAWMAKERS -- ARE THERE ANTI-TRUST LAWS THEY COULD USE TO BREAK SOME OF THIS UP?

DOESN'T SOUNDS LIKE THAT'S EVEN POSSIBLE.

>> I THINK WHAT HAS BEEN INITIATED, AND YOU'RE SEEING BIPARTISAN EFFORTS ON THIS, THIS IS ONE OF THE FEW CASES IN WHICH YOU'RE SEEING A LOT OF BIPARTISANSHIP IN TERMS OF TRYING TO GET SOMETHING RESEMBLING TRANSPARENCY INTO THE PICTURE.

ONE OF THE BIGGEST POINTS OF CONTENTION IS THE MOW GUESS OPERANDI OF PBMs WHICH GO TO INSURANCE COMPANIES AND SAY IF YOU -- I'M PICKING A NAME -- PFIZER, WANT YOUR PRODUCT IN OUR FORMULARY TO BE COVERED BY OUR PROGRAM INSTEAD OF THE MERCK PRODUCT OR THE OTHER PRODUCTS, YOU WILL GIVE US A DISCOUNTS ON YOUR PRODUCT AND THAT DISCOUNT OR REBATE, NOBODY KNOWS HOW MUCH IT IS, YOU DON'T KNOW HOW MUCH OF THAT IS PASSED BACK ON TO THE CUSTOMER.

IT IS PROPRIETARY INFORMATION SO THERE ARE EFFORTS TO BRING SOME OF THAT TRANSPARENCY INTO THE PICTURE.

THERE ALSO ARE EFFORTS AT THE STATE LEVEL TO DEAL WITH WHAT'S HAPPENING TO THE LIKES OF JOHN HESHON AT St. PAUL CORNER DRUG, WHICH IS HIS REIMBURSEMENTS TO FILL A PRESCRIPTION, WHICH TYPICALLY WOULD BE ABOUT $10.75 FOR ALL THAT IT TAKES TO FILL A BOTTLE OF PILLS FOR YOU AND ME.

>> Eric: YOU REALLY HAVE A TERRIFIC PIECE ON -- IS IT PBS.ORG?

>> IT'S PBS.ORG/NEWSHOUR.

>> Eric: IT'S TIME WELL SPENT TO GET A HANDLE ON THIS BECAUSE IT'S -- >> IT BARELY SCRATCHES IT IS SURFACE AND ONE LAST THING THAT'S UNIQUE ABOUT MINNESOTA, NOT AS MUCH UNIQUE AS A DUBIOUS FIRST PLACE, MINNESOTA HAS SEEN MORE COMMUNITY PHARMACIES GO OUT OF BUSINESS THAN ANY OTHER STATE IN THE COUNTRY.

A THIRD OF OUR MA AND PA PHARMACY STORES, THAT'S SIMPLIFICATION, HAVE GONE UNDER IN THE LAST DECADE.

>> Eric: